BP faces $2bn in impairment charges as profit guidance is cut
- BP plans to cut the crude processing capacity of its Gelsenkirchen oil refinery
- Built in 1935, the German facility can process 265,000 barrels of oil per day
BP has warned impairment charges could total up to $2billion for the second quarter, partly owing to a review of a major European refinery.
The oil supermajor announced plans in March to cut the crude processing capacity of its Gelsenkirchen oil refinery in Germany by a third from next year due to weaker expected future demand.
The German facility can process 265,000 barrels of oil per day and comprises two plants and a petrochemicals site.
Production targets: BP announced plans in March to cut the crude processing capacity of its Gelsenkirchen oil refinery by a third from 2025 due to weaker expected future demand
BP recorded $1.3billion in impairments from the refinery last year, which it claimed primarily reflected 'changes in economic assumptions'.
It anticipates further charges from the refinery will contribute to 'asset impairments and associated onerous contract provisions' of between $1billion and $2billion for the April to June period.
The London-listed group cautioned that 'significantly lower' refining margins in its customers segment would reduce second-quarter earnings by $500million to $700million (£391million to £547million).
BP shares had dropped 4.4 per cent to 453.9p by early Tuesday afternoon following its latest trading statement, making them the biggest faller on the FTSE 100 Index.
In May, BP revealed its underlying profits nearly halved to £2.2billion in the first three months of 2024 because of a drop in refining margins and oil and gas prices.
Gas prices continued declining in the subsequent quarter, averaging $1.89 per million thermal units, compared to $2.25/mmBtu in the opening quarter.
However, Brent Crude oil prices rose slightly from $83.16/bbl to almost $85/bbl.
Fossil fuel prices remain above historical averages due to conflicts in Ukraine and the Middle East and OPEC+ countries like Saudi Arabia extending production cuts.
They started rising considerably when Covid-19 restrictions began loosening, since which time BP has enjoyed its two most profitable years ever - £23billion in 2022 and £11billion in 2023.
The bumper results have enabled BP to cut its debts while still handing out generous shareholder returns, including £10.2billion last year.
Under chief executive Murray Auchincloss, BP has also tempered its environmental plans amid investor pressure, including a halt on new offshore wind projects.
Derren Nathan, head of equity research at Hargreaves Lansdown, said BP 'is likely to remain an important part of the energy mix for some time to come.
'It still has one eye on the energy transition, and there appears to be little downward pressure on the oil price in the immediate future. This should keep both cash flow and generous distributions to investors flowing.'
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